Whittier, CA

 

It seems lately as if everyone I talk to keeps saying that the real estate market is headed for an "absolute crash". However when I ask why they feel this way, the answer is always the same...."Because of high interest rates". It's at that time I try and remind them that high interest rates by themselves have never caused a market crash. You have to look at the entire picture and take into account all the moving parts. This current market differs with those of the past in several key ways.

First, Unlike the last market downturn which was driven by the mortgage industries lack of quality control, homeowners are not facing the kinds of foreclosure numbers like before. Long gone are the bad stated income and interest only loans. Those loans have been refinanced over the years into more stable products and therefore don't raise the chance for a wave of foreclosures and bank repos.

Secondly, homeowners have TONS of Equity this time around. Unlike last time where homeowners had no way out, they now can use the equity (built over time) to pay off any existing loan debt and/or downsize with the money from the current home. 

Thirdly, We recently saw four months ago that as soon as the home prices took even a small dip, buyers who had put their searches on pause, jumped BACK into the market at the same time trying to get a piece of that same discount.....Well, you know what that did. Yep, it caused the prices in some areas to continue climbing and brought back a few bidding wars.

Lastly (and most importantly), Southern California has NOT met it's required housing units which have been mandated by the state. We are STILL neck deep in a lack of housing crisis. We still don't have enough units available to accommodate those who are currently here. So how is it working now?? It's not. In many cases you have families living with other families, pooling their funds together to have a place to live. But as we all know, that can't last for long and there's a family who then must go out into the market place only to find there's not enough inventory available to rent.....Or what about the young couple just starting out who have been living with the in-laws for years to save up and are "more than ready" to get out and into their own place. Do you think they plan on living there forever?? Nope. I've seen it too many times. Therefore, until Southern California can satisfy it's amount of housing units or decrease it's population by, say....10 million people, then there's no crash in sight. Will it at least cool down a bit?? Yes. Even with the items listed, interest rates and job rates are projected to bring the market down no more than 10% on the year. I would refer to this as a market correction and nothing more. Don't let the media or anyone try and convince you that prices are going down 40%-50%. There are too many outstanding circumstances (population, foreclosure correction, hedge fund investors, new generation of first time buyers, etc.) that will not allow the Southern California real estate market crash...even for those pessimistic people who are hoping it will cash because they still haven't bought into the market. Don't be that person.